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July 2008 Archives

July 3, 2008

All Eyes Abroad

As we head into this most patriotic of long weekends, commodity traders will be focusing their attention across the Atlantic where the European Central Bank (ECB) will be meeting to discuss the Euro Zone’s interest rate policy. Unlike the Fed, the ECB has been much more decisive in its policies – to a fault many will argue. The market is betting that the bank will raise rates by a quarter basis point in an attempt to curb inflation, but this policy may only exacerbate the problem instead of helping, as it will likely lead to further appreciation of the Euro versus the US Dollar. The two main forces driving inflation globally have been increased consumption by emerging market countries and the weakening US Dollar. There has already been some dissent from EU member states since ECB President Trichet all but stated the bank will raise rates at tomorrow’s meeting. Some member states have voiced their opposition to the proposed rate hike, arguing that further strengthening of the currency would put Europe at a competitive disadvantage and could lead to an economic slowdown in Europe.

Here’s a quick breakdown on how this may impact the markets:

Interest rates – US debt instruments may suffer from lower demand from overseas investors due to weak interest rate parity and currency fears. Bonds have climbed steadily in recent sessions because of the weakness in equity prices, but bullish enthusiasm may wane a bit if the ECB policy statement is hawkish. A dovish statement or inaction by the bank could excite the bull camp.

Currencies – A rate hike most likely would be interpreted as bullish for the Euro and negative for the Dollar Index. The Aussie and Canadian Dollars may get a lift on fears that the move may result in inflation kicking-up, due to the fact that both of these nations are raw material exporters. The Yen and Swiss may suffer due to the possible lure of higher rates in the Euro Zone. Then Yen may once again suffer because of the carry trade.

Metals – Precious metals have rallied in recent sessions on the coattails of the Crude Oil market. An increase in interest rates would likely bode well for the market going into the long holiday weekend. Base metals, on the other hand, may have a more difficult time finding direction from the policy statement. On one hand, higher rates may result in lower demand, which could lead to lower prices. On the other hand, some industrial metals, such as copper, have benefited from capital outflows from equities into commodities.

Energies – Energies have benefited from the weak US Dollar more than any commodity, except for the possibly grains. Barring any major geopolitical turn of events, the policy statement may set the tone for the market.

Grains/Softs – Grains and softs will likely benefit form a strong statement from the ECB, but a dovish statement does not necessarily spell doom for the grain market, considering domestic matters. A weaker greenback could lead to strong overseas demand for US grain, while Sugar would likely benefit from higher energy prices. Cocoa is somewhat of a wildcard, depending on how the Pound reacts to the announcement.

July 7, 2008

Not A Gold Start

Gold – Gold prices are sharply lower for the second consecutive session on falling Crude Oil prices and gains in the Dollar Index. Iran's foreign minister stated that talks with the West over its nuclear program took a much more positive tone, leading to the slide in Oil prices. Meanwhile, the ECB's policy statement did not have the extremely hawkish tone that most traders were looking for and was not particularly forward-leaning, which is unusual given the generally forthright nature of the bank. Most traders are still looking for further tightening by the end of the year, but now there is an air of uncertainty, especially after German industrial production showed another unexpected decline. In addition to the outside market keeping Gold prices depressed, technicians seem disappointed in the fact that the August contract was unable to advance beyond resistance at 947.70, the April 17th relative high close. Prices tumbled before the RSI gave an overbought reading and the indicator has fallen more sharply than the momentum indicator, which can be seen as positive over the mid-term. Support comes in at 924.70, 915.90 and 903.20, while resistance can be found at 946.20, 958.80 and 967.70.

Dollar Index – The September Dollar Index has bounced back from recent lows – which came dangerously close to testing all-time lows – on poor manufacturing data from Germany and a vague ECB policy statement. A slowdown in the Eurozone may help the Dollar over the long haul, especially if the ECB continues in its tightening policy, further stymieing growth. An extended recovery may be difficult to come by, though, as the market has largely lost faith in the Federal Reserve's ability to keep inflation in check. The bounce from recent lows is encouraging for the Dollar, but technicians would like to see rallies beyond recent highs at 74.75. Even then, traders may be skeptical of the Dollar's ability to hold after signaling several false breakouts. Momentum has struggled to stay above the zero line and is showing negative divergence from RSI, both of which can be seen as negative near-term. Support comes in at 72.49, 71.90 and 71.50, while resistance can be found at 73.48, 73.88 and 74.47.

Corn – Corn prices tumbled overnight on warmer weather moving into the flooded Midwest. Traders are expecting the warmer weather to aid in taking the flood levels down and possibly boosting yields. The flip side to this coin, though, is that roots may be exposed due to the flooding and susceptible to heat stress if the hot weather persists. To put it simply, farmers are hoping for warmer than usual, but not extremely hot weather. It will take some time to sort out exactly how much crop was damaged in recent flooding, making the next couple of weeks prone to extreme volatility. The December contract finds itself in a vulnerable position technically, with the market trading dangerously close to support at 735. The sharp run-up to current levels leaves the market with little support until 655.50. On a positive note, the market has recovered from overbought levels and we are still within shouting distance of highs. Support comes in at 756.25, 725.50 and 704.00, while resistance can be found at 808.50, 830.00 and 860.75.

Rob Kurzatkowski, Commodity Analyst

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July 8, 2008

Is Black Gold Losing Its Luster?

Crude Oil – Oil prices are tumbling for the second consecutive session on speculation that Iran's talks with the West may have taken a turn for the better. While a compromise over the country’s nuclear program is not imminent, prices are falling on the mere fact that the standoff has not escalated. Israel's successful interceptor missile test also suggests that the nation may forgo a proactive military approach in dealing with the perceived Iranian threat. The U.S. Dollar may begin to strengthen against the Euro and British Pound, as both the Euro Zone and UK economies are beginning to show signs of potentially falling into recession. Weak German manufacturing news yesterday was followed by indications that the UK's services sector has slowed dramatically. The Fed may have a difficult time raising interest rates until early next year, as lending has not shown any significant improvement. It appears that the geopolitical firestorm and worries over the falling greenback have subsided for the moment, but bearish economic indicators or renewed tensions with Iran could spark a rally at any time. August Crude Oil is currently trading below the 9-day moving average, signaling possible short-term technical weakness. The market is also nearing the 18-day average on the downside; closes below the average may signal that a near-term high is in place. The chart pattern is hinting at the possibility of a short-term reversal to the uptrend and a close below the $140 mark could be a psychological blow to the bull camp. Momentum is showing bullish divergence from the RSI, suggesting that this correction may be short lived. Support comes in at 139.08, 136.80 and 134.07, while resistance can be found at 144.09, 146.82 and 149.10.

Silver – Precious metals posted solid gains in early overnight trading, only to reverse course and head lower going into the U.S. session. Global stock indexes and U.S. index futures are sharply lower, further aiding prices, but the weight of lower energy prices has taken a toll on the Silver market. The outlook for precious metals has improved recently due to weakening economic conditions around the globe, but the market has been unable to maintain upside due to outside market pressures. If stocks continue to plummet, traders may flock to the safe havens of Gold and Silver, but a rising Dollar could keep more traders on the sidelines. After testing resistance in the 18.40-18.45 area, the September contract has pulled back. For the market to pick up some steam, prices will likely need to clear this resistance area and 18.85 for the bulls to firmly gain control of the market. Inability to cross the 18.45 threshold could result in further range-bound trading. Momentum is showing bullish divergence from RSI, hinting at possible short-term strength. Support comes in at 17.62, 17.32 and 17.015, while resistance can be found at 18.225, 18.53 and 18.83.

Rob Kurzatkowski, Commodity Analyst

July 9, 2008

Point, Counterpoint

Crude Oil – Just as Israel tested its new interceptor missile, Iran went forward with its own long-range missile test – one capable of reaching Israel – further escalating tensions in its ongoing standoff with the West. This news sent Crude Oil futures $1.50 higher in early trading after falling more than $9 over the past two sessions. In addition to the new geopolitical development, traders will get to digest U.S. inventory data today, as the EIA is expected to show a decline of 2.5 million barrels for the week. Despite the bullish slant expected from today's report, Oil traders have begun to express their doubts about the global economy and commodity prices. Indicators outside of the U.S. are beginning to look more ominous, suggesting that inflation may begin to cool on weak demand for raw materials. Traders will continue to focus on Iran and possible supply disruptions, but the poor economic news may prevent the explosive rallies that we have seen in recent weeks. The August contract closed below the 18-day moving average yesterday, signaling that a near-term high may be in place. The chart pattern signals that the market may be in store for a correction, but weary bears may wait for a close below 132.00 before jumping into the market. Countering this bearish view, momentum remains above the zero line and continues to show bullish divergence from the RSI indicator. Support comes in at 133.31, 130.57 and 126.01, while resistance can be found at 140.61, 145.17 and 147.91.

S&P – Stock index futures are trading slightly lower this morning after posting solid gains yesterday. The news of Iran's missile test and the ensuing rise in Oil prices has weighed on the futures market in overnight trading. Airlines and retailers are expected to continue their pattern of disappointing earnings, which has overshadowed upgrades in U.S. metal manufacturers. The bottom line is that there is plenty of risk and uncertainty hanging over the market and many investors are simply not willing to stomach this risk until the economy shows more solid signs of improvement. The enthusiasm over the Fed suggesting that it will keep emergency funds open to banks may be short-lived, as the sector has stabilized but shows no signs of improvement. There are no major economic releases today, so the stock market may take its cue from the energy market after the release of the weekly inventory data. The September e-mini S&P chart shows a bullish engulfing pattern, suggesting a positive bias. Adding to this bullish view, momentum is outpacing the RSI indicator to the upside. While the chart shows potential, technicians would probably like to see the market close above the 1300 level before declaring a bullish reversal. Support comes in at 1248.25, 1222.75 and 1209.00, while resistance can be found at 1287.50, 1301.25 and 1326.75.

Rob Kurzatkowski, Commodity Analyst

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July 10, 2008

Traders Looking for the Safety Net

Bonds – The meltdown in global equity prices has sent traders scrambling to the relative safety of U.S. treasuries. Commodity prices have been much lower for the most part over the past week, due to worries about the growth prospects for the global economy. Nonetheless, continued inflationary pressures may curb traders' appetites for treasuries, which typically underperform other investments in periods of high inflation. Going forward, the markets will likely take their cues from economic indicators to determine direction. If growth continues to slow in emerging markets, it could signal the current high inflation environment may moderate, making government debt attractive. On the other hand, if these markets are not cooling at the pace previously thought, investors may flock to commodities at the expense of bonds. The upward crossover of the 18 and 50-day moving averages and close above resistance at 116-26 can be viewed as a bullish for the September contract in the mid-term. Momentum continues to outpace both price and RSI, adding to the bullish sentiment. The RSI indicator is currently at overbought levels, which may temper some of this bullish enthusiasm. Support comes in at 116-20, 116-01 and 115-20, while resistance can be found at 117-19, 118-00 and 118-19.

Copper – Copper prices are slightly lower this morning, despite reports that workers at Freeport's Cerro Verde mining strip in Peru plan to strike at the end of this week. The market was sharply lower yesterday ahead of the news before a big rally. Today's lack of enthusiasm may be attributed to growing LME stocks and slowing Chinese demand. Outside forces – in the forms of lower Crude Oil prices and a stronger U.S. Dollar – also have depressed prices. The market will be monitoring the worker unrest at the Peruvian mine to determine what, if any, impact it would make on supply. At the moment, it appears that supplies are ample, but an extended strike may cause end users to begin hording the base metal to ensure supplies, which could drawdown LME stocks. Thus far, the market has been unable to build off yesterday's strong close, which put the September contract right at the 50-day moving average. Closes above the average and near-term resistance at 3.75 may be needed to reverse the recent slide, but a close above 3.85 may be needed to swing the market favor to the bulls. Support comes in at 3.67, 3.60 and 3.56, while resistance can be found at 3.78, 3.82 and 3.89.

Rob Kurzatkowski, Commodity Analyst

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July 11, 2008

Triple Threat

Crude Oil – Worker unrest in Brazil and continuing geopolitical tension have inspired Crude Oil futures to test all-time highs. Workers at Petroleo Brasileiro SA are seeking pay for the day they returned after a two-week shift at an offshore rig and have threatened to strike as a result. In Nigeria, the Movement for the Emancipation of the Niger Delta, or MEND, is said to have called off its cease-fire agreement as of midnight on July 12. The group has threatened to attack British Oil interests after Prime Minister Gordon Brown pledged his nation's support to the Nigerian government. The group would also like the government to share more of its oil wealth with the poor inhabitants of the Niger Delta region. Hopes of improvements in Iran's talks with the West have been quashed by the country's recent test-firing of its long-range missiles. It's also an indication that the country expects to come under attack by either Israel or the U.S. at some point. The news out of Brazil is relatively minor for the petroleum market, but comes at an inopportune time, given the news out of Nigeria and Iran. Any agreement between workers and Petroleo Brasileiro SA would likely be seen as a trivial event unless things calm down in other parts of the world. In addition to the fundamental factors, this rally can be at least partially attributed to technicals, as the August contract was able to hold support at 135.50, which may have brought bulls back into the market after heavy profit-taking. Support comes in at 137.34, 133.04 and 130.64, while resistance can be found at 144.04, 146.44 and 150.74.

Gold – The explosive rally in Crude Oil and a weaker greenback have sent Gold higher this morning, potentially marking the fourth consecutive weekly gain in the precious metal. The climb for Gold has been slow and steady, as it has been overshadowed by the petroleum market and several food-based commodities. Given the economic uncertainty in the U.S. and abroad – not to mention the U.S. stock market officially confirming bear market conditions – traders may flock to the yellow metal as a safe haven investment. Some argue that given the economic conditions, Gold may even have more upside potential than petroleum due to the possibility of decreasing demand for energy products – a fairly bold statement in the wake of several major geopolitical events and the potential for precious metals to run into snags of their own. If conditions continue to worsen, jewelry demand may begin to wane and inflation may subside, causing Gold to lose its appeal as an inflation hedge. Technically, the August contract may be on the verge of a breakout above near-term highs of 950 and, more importantly, 964.30. Failure to advance beyond these levels may result in range-bound trading or possible sell-offs. Support comes in at 929.20, 916.40 and 906.40, while resistance can be found at 952.00, 962.00 and 974.80.

Rob Kurzatkowski, Commodity Analyst

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July 15, 2008

Commodities Pop on Dollar Drop

Gold – Precious metals prices continue to march forward due to uncertainty in equities and a new record low in the Dollar. Gold has had a perfect storm of bullish developments recently – equity prices continue to plummet, energy prices are near all-time highs, tensions remain high in the Middle East and the greenback has not been able to mount any sort of comeback. The Fannie Mae and Freddie Mac bailouts have caused the Fed to react by increasing the money supply, which hurts the U.S. currency's chance of a recovery and lessens the chances of inflation subsiding. As traders begin to flock to safe haven investments, interest in Gold ETFs has continued to climb, which, in turn, has led to higher physical demand for the yellow metal. August Gold was able to close above resistance at 964.30, opening the door for a possible run at contract highs. Despite a sharp market rally and otherwise bullish technicals, momentum is beginning to lag behind prices and RSI, hinting that some consolidation may be on the way. The RSI indicator is now overbought, also hinting that this recent rally may begin to cool a bit in the near term. Support comes in at 959.80, 945.90 and 937.60, while resistance can be found at 982.00, 990.30 and 1004.20.

Corn – December Corn futures jumped almost 8 cents in overnight trading on concerns that yields may fall below expected levels. The flooding that parts of the Midwest experienced last month may have slowed pollination and, as a result, reduced crop yields. After falling six of the past seven trading sessions, the market has been looking for some sort of bullish news, but the enthusiasm may be short-lived, as warm temperatures and ample rains are forecast for the next several weeks. Also, 64 percent of Corn was in good or excellent condition as of July 13th, identical to the same period last year, and two percent higher than a week ago. December Corn closed below the 50-day moving average yesterday, suggesting that the long-term trend in prices may be shifting lower. The chart suggests that the market may not run into ample support until it falls to the 640-650 area, and momentum continues to slide despite the bounce overnight. The RSI indicator is oversold at the moment, which could lead to some short covering, as the market probes for a near-term bottom. Support comes in at 676, 669.75 and 696.50, while resistance can be found at 692.50, 702.75 and 709.

Rob Kurzatkowski, Commodity Analyst

July 16, 2008

Sour Crude

Crude Oil – Oil fell sharply yesterday after comments by Fed Chairman Ben Bernanke indicating that risks to economic growth had increased. While this news is not exactly new, the amount of economic cheerleading being done by Bernanke, Treasury Secretary Hank Paulson and President Bush recently is probably an indication that all is not well. Demand has already shown signs of a slowdown, and threats to the supply side – namely the Iranian nuclear standoff and unrest in the Niger Delta – have kept prices near all-time highs. OPEC has slashed its demand outlook for a sixth consecutive month and also indicated that the trend will likely continue into 2009, citing a possible global economic slowdown. Today's EIA inventory report is expected to show Crude Oil inventories dropping 2.2 million barrels, while gasoline inventories are expected to be flat and distillates are expected to show a build of 2 million barrels. It would not be surprising to see the distillate number come in much lower than the consensus estimate, as the U.S. has been exporting a great deal of diesel fuel in recent months. August Crude Oil is close to confirming a bearish double top formation on a close below 135.34 that measures 123.50 to the downside. Bears may be hesitant to jump on the signal, though, as they have been burned on false bearish technical signals in the past. Traders instead may be looking for longs to liquidate positions first before they test the waters. Support comes in at 134.20, 129.65 and 123.39, while resistance can be found at 145.01, 151.27 and 155.82.

10-Year Notes – Note futures are higher this morning on lower stock index futures and a slide in commodity prices. The previously mentioned economic cheerleading being done by the Federal government and the poor performance in equities has traders looking for a safe haven to put their money, making treasuries attractive. The market may have gotten ahead of itself several weeks ago by pricing in higher interest rates later this year, but the latest recent banking crisis may inspire the Fed to keep rates low. A breakdown in commodity prices could lead to more money flowing into treasuries, as it would be an indication that inflation may be subsiding and would give fixed income an apparent advantage over commodities in terms of profit potential. This is unlikely to happen quickly due to continuing demand for raw materials in emerging markets and the possibility that some unforeseen geopolitical event might spark a rally in Oil prices. September T-Notes were unable to hold the bulk of yesterday's early gains, setting up a possible bearish pattern on the daily chart. A close above yesterday's high of 116-02 could negate the possible bear pattern and get the market back into bull mode. Support comes in at 114-29, 114/12 and 113-25, while resistance may be found at 116-00, 116-19 and 117-04.

Rob Kurzatkowski, Commodity Analyst

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July 17, 2008

Stocks Try to Mount a Rally

S&P – Index futures are higher in overnight trading, lifted by stronger-than-expected earnings from JP Morgan – 54 cents a share versus estimates of only 44 cents. Coupled with the surprising news from Wells Fargo, some traders believe that the worst may have passed for many of the nation's larger financial institutions. Merrill Lynch, Coca Cola, Microsoft, IBM and Google are also releasing earnings today, which will likely make trading very volatile – nothing new for the market these days. On the economic front, housing starts and permits and initial claims will be released at 8:30 ET, and the Philly Fed number will come out at 10:00 ET. Housing starts are expected to fall to 960,000 and permits are expected to show a more modest decrease to 965,000, while initial claims are forecast to increase to 380,000. As with corporate earnings, these figures have been revised down – or up in the case of initial claims - to the point where an upside (downside) surprise may be likely. The Philly Fed number is expected to show manufacturing in the region still contracting, with a consensus estimate of -15.0, which would be a very modest improvement over last month's -17.1 figure. The September e-mini S&P shows what appears to be a V-bottom reversal on the daily chart, which may be considered bullish. Traders will be looking for some sort of follow-through to confirm that pattern, preferably a close above the 18-day moving average, which is currently sitting at 1263.25. Failure to cross resistance at 1293.00 in the near term may result in the bears retaining control of the market. Support comes in at 1213.50, 1186.00 and 1169.75, while resistance can be found at 1257.25, 1273.75 and 1301.00.

Crude Oil – Crude is lower for the third consecutive trading session on demand worries. China, the world's second largest consumer of petroleum, has reported its slowest economic growth since 2005. Of the 23 industrialized nations, Canada has been the only nation to avoid bear market conditions in its stock indexes. Recent supply and demand data has shown that the skyrocketing cost of Oil has changed consumer and industrial behavior, which, in turn, has trimmed demand both in the U.S. and overseas. Yesterday's EIA report demonstrated that despite increases in imports of “black gold” and refinery utilization, both U.S. demand for gasoline and exports of diesel fuel continue to fall. Things have quieted on the geopolitical front as well, with fears of Nigerian rebel group MEND stepping up attacks on Western interests yet to be substantiated. More importantly, the U.S. has made the symbolic move of joining the EU in nuclear talks with Iran. The U.S. is also expected to show a diplomatic presence in Iran for the first time since 1980, which could be seen as something of a breakthrough. However, both of these situations have the possibility to change quickly, which would send prices back into bull mode. August Crude Oil confirmed a bearish double top formation yesterday, but prices finished well off of lows, causing traders to be cautious acting on the pattern. Thus far, prices have stayed above support at 132.00 and many market observers may be looking for a solid close below this level before ceding control to the bears. The August contract is also in danger of closing below the 50-day moving average for the first time since early February, which could be seen as a bearish indicator longer-term. Support comes in at 133.31, 132.03 and 130.96, while resistance can be found at 135.666, 136.73 and 138.01.

Rob Kurzatkowski, Commodity Analyst

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July 22, 2008

Dollar Doldrums

Dollar Index – The U.S. Dollar continues to trade near all-time lows on weakness in financial stocks. The fallout from Freddie Mac and Fannie Mae continues to hang over the markets and the situation may worsen for both troubled lenders before it gets better. Both companies have stepped up their purchases of non-guaranteed subprime securities in recent months, opening the door for even larger write-downs in the near future. Making matters worse, profits at American Express tumbled due to a higher volume of consumer defaults, indicating the economic growth probably has not yet bottomed out. The banking crisis and weak consumer spending will likely preclude the Fed from raising rates this year, which favors the Euro and other overseas currencies and dims the chances of a larger-scale recovery. Fresh lows may lead to further unwinding of U.S. Dollar positions. The September Dollar Index chart shows the market in a solid downtrend, unable to even rally above the 9-day moving average in order to gain a bit of short-term upside momentum. If the market is able to hold recent lows and rally beyond the July 17 high of 72.675, the market may see a short-term recovery rally. Momentum has stayed fairly steady, despite recent price action, indicating the market may see a short-term bounce. Support comes in at 71.99, 71.76 and 71.515, while resistance may be found at 72.465, 72.71 and 72.94.

S&P – Disappointing earnings from American Express, as well as diminished growth outlooks from Apple and Texas Instruments, have sent stock futures tumbling in overnight trading. Traders who may have gotten a bit ahead of themselves on surprisingly good earnings reports last week and might be brought back to reality by this data. While larger money center banks appear to be seeing the light at the end of the tunnel, the worst may be yet to come for credit card companies and mortgage lenders. The increase in consumer defaults, coupled with a decreased appetite for discretionary purchases, may put credit card companies in a much more dire financial position. Because the card companies are generally not seen as quite as important in the grand scheme of the financial system as banks and mortgage lenders, the possibility of a government bailout is virtually non-existent. Technology stocks may continue to suffer the effects of an economic slowdown due to higher prices for necessities and the decreased purchasing power of consumers. Yesterday's spinning top candlestick pattern on the daily September e-mini S&P chart hinted at today's reversal of the recent uptrend, and traders may be looking for a weak close today to confirm a short-term reversal pattern. Rallies beyond the 1275 area and, more importantly, the psychological resistance at 1300 could attract bulls back to the market. Support comes in at 1254.75, 1247.75 and 1240.50, while resistance can be found at 1268.75, 1275.75 and 1285.75.

Gold – The sell-off in equities and lower U.S. Dollar has driven Gold prices higher in the early going. With economic conditions both in the U.S. and overseas weakening, traders may continue to pour money into Gold futures and ETFs. More importantly for the precious metals market, prices have somewhat detached themselves from energies and other commodities. Even if inflation begins to moderate, traders may opt to split their assets between precious metals and debt instruments to hedge against another ramp-up in inflation. Last week's decline in the August contract did not affect the technical outlook for Gold, as the market was able to confirm support at the previous resistance area of 950. Support comes in at 956.60, 949.50 and 943.30, while resistance can be found at 969.90, 976.10 and 983.20.

Rob Kurzatkowski, Commodity Analyst

July 25, 2008

Worldwide Woes

S&P – European and Asian markets slumped in overnight trading, dragging down U.S. stock index futures before the bell. Recent data seems to confirm recent fears that the U.S. slowdown is spilling over to outside markets. Germany's Ifo Business Confidence Index saw its largest drop since the 9/11 attacks, falling to 97.5 from 101.3 points for the month of June; Citigroup trimmed earnings forecasts for the UK banking sector by 40 percent; and, National Australia Bank, Australia's largest lender, wrote off A$830 in U.S. mortgages, causing shares to plunge. Back in the States, traders are expecting today's 10:00 AM EST report on New Homes Sales to show a drop to 505,000, which could lead to more woes in the troubled lending sector. Weak home sales figures and skyrocketing foreclosure rates have prevented a recovery in banking shares. Mortgage rates have also climbed on expectations that the Fed may begin tightening rates by year-end, suggesting housing prices may not bottom in November-December of this year, as many had expected. One positive that can be taken amid all of this dismal data is the fact that the U.S. economy was the first to feel the impact of the credit crunch and, in theory, could make the quickest recovery. Banks have already written off enormous sums of bad debt and seem to be erring on the side of caution when giving their earnings outlooks. Another positive implication of a slowdown overseas is the possibility of rapidly decreasing inflation. Consumption of raw materials – namely food and energy – may slow significantly, aiding a U.S. recovery. In addition to New Homes Sales, the Durable Goods Orders report will be released at 8:30 AM EST, and is expected to show a contraction of 3 percent. September e-mini S&P futures bounced off of the 38.2 percent Fibonacci retracement resistance area on Wednesday, suggesting traders may not be confident in the market's chances of a recovery. The 9-day moving average may be on the verge of crossing the 18-day average to the upside, which could be seen as positive in the near term. The market is at a turning point in the short term. Crossing the 1293 mark – which is both chart and Fib resistance – could swing the market in favor of the bulls, while a close below the 1240 support area could lead to further declines. Momentum is showing strong bullish divergence from both price and RSI, suggesting a positive short-term bias. Support comes in at 1241.50, 1229.25 and 1207.50, while resistance can be found at 1275.50, 1297.25 and 1309.50.

Crude Oil – Oil futures have edged slightly higher in the early going this morning on comments from Israel and Nigerian militant group MEND. Israel upped its rhetoric, saying that military options are available if negotiations with Iran fail. This is hardly fresh news, but may have shaken the resolve of some Oil bears. Traders seem to be more focused on suggestions from MEND that it will attack major pipelines that feed two of the nation's four major refineries. Today's trading may have a slightly bullish bias due to prices dropping rapidly over the past two weeks and concerns that supplies may be disrupted. The bullish enthusiasm may be somewhat subdued due to worries that a global economic slowdown may continue to trim demand. Also, the odds of an attack on Iran prior to the November election are fairly slim, as Israel could have a falling-out with U.S. over what might be seen as sabotaging the election and disrupting Oil supplies. September Crude Oil technicals remain bearish, at least in the near term. The 18-day moving average is in danger of crossing through the 50-day to the downside, which may be seen as bearish over the mid-term. Price action over the past two sessions, while positive, suggests that prices are consolidating before moving lower. If the price of the September contract falls below the $120 mark, the market may see more downside. Momentum is moving lower this morning, despite the rally, hinting that bulls may not be very confident in their opinion. Support comes in at 123.86, 122.23 and 120.94, while resistance can be found at 126.78, 128.07 and 129.70.

Cocoa – Cocoa prices have gotten a boost from a weaker Dollar and a stronger British pound, leading to arbitrage buying. Cocoa has plummeted this month on improved growing conditions in the Ivory Coast. Traders were expecting that some of the problems that had plagued the midcrop may also hamper the main crop, leading prices ahead of themselves. The government in the Ivory Coast is also stepping up efforts to spay crops, which would decrease the likelihood of black pod and other diseases. The real story in Cocoa may be the fund activity, with many funds bailing out of their positions, sparking this plummet. The market has been a favorite of many hedge funds and the sharp drop in energy and grain prices may have forced many funds out of Cocoa to meet margin calls and de-leverage their positions. Technically, September Cocoa remains weak. The chart pattern shows the market consolidating around the 2750 area, which could mean more downside lies ahead. Fibonacci support at 2654 may be a key area going forward. If prices are unable to stop their slide at 2654, prices could test April lows. Support comes in at 2725, 2706 and 2678, while resistance can be found at 2772, 2800 and 2819.

Rob Kurzatkowski, Commodity Analyst

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